The Magic of Margin

The great Warren Buffet once said, “I would rather have a 10 million dollar company making 40 points than 100 million dollar company making 20 points.”  When Warren talk’s people listen; he is one of the most successful investors of our time and knows a thing or two about investing in successful companies.

When it comes to running a business having a healthy profit margin is essential.

Just because your competition has a cheaper price doesn’t mean you need to lower yours. There is nothing wrong with being competitive but be competitive on the high side.  Why would you want to work 50, 60, or 70 hours a week and at the end of the year have nothing to show for it.  Your goal if you don’t have one already should be to have a 10% net income at the end of the year.  That means after all of your expenses are paid including your salary.

As a business you can’t be all things to all people. Understand who you are, who your customer is and increase the value you add to your client by providing superior service. Have you noticed that companies that charge more usually have outstanding service? If you are going to be the low cost provider then you will not be able to offer great service because you won’t be able to afford to. Raise the understanding first in your own mind as to what your value is and charge a fair price.  You may lose a few customers but you will keep your most profitable ones and those are the ones you want anyways.

Here are 3 things that healthy margins can do for your business:

  1. They can give you a raise.
  2. They can give your employees a raise or better working conditions.
  3. They can give you room to hire a team around you that can help grow your business.
  4. They can give you room to invest in your brand.

Derek Thielen
Velocity Marketing Group

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